Unless you’ve been living on an island, you are aware that interest rates have spiked up over the last 1.5 years. The cost of capital is 2 to 3 times + what it used to be, and this is causing all types of issues in real estate and especially in the 1 to 4 units market.
No inventory, affordability issues, 92% of mortgages 5% rates or less, and prices in most markets are NOT going down. The list goes on…
Most of us are in the camp that interest rates will eventually start to come back down. We don’t have an exact number to where they will land but we know they will be lower. So, if a 30-year fixed mortgage is around a low 7’s % for an owner-occupied loan today, we can guess that rates will be in the 5’s or 6’s in the future. That equals to hundreds and for some scenarios thousands of dollars a month difference in payments. That would most likely get lots of buyers off the fence and enter the market to purchase a home and that will hopefully motivate sellers with low rates to list their homes because rates are lower. In effect, we’ll have more inventory!
The Trillion-dollar question is, will lower rates motivate owners to sell? Will it bring enough inventory to lower housing prices? Will there be enough buyers to buy all the listings? Will there be a real estate market correction? I have listened to so many experts voice their opinions, and it seems that they have a very similar answer. I would say the majority believe that lower rates will provide more inventory, but it will also bring a BIG demand in buyers.
The majority think the market will go flat to keep going up because we will not get enough inventory since most owners are sitting on too low of rates purchased prior to prices going way up. So there is NOT going to be enough motivation to sell and buy a new house. The case that could change this for the housing market is if there is a really bad recession and millions of people lose their jobs and are forced to sell. If that does not happen, most people believe that real estate will NOT see a price correction. In fact, the majority think prices will go up over the next few years.
If we keep seeing trapped inventory, look for the government to start trying to implement laws or new rules to try to force sellers. Here are some of the laws they would try to pass; PUSH capital gains to $500k single and $1MM married, make it harder for flippers/Wall Street buyers to purchase homes, and another one I heard that if a flipper/investor sells their property to a first-time home buyer they would be willing to waive capital gains hit. Keep an eye out for more as first-time home buyers will start hammering on their local politicians to do something and that chatter will move the issue to Congress or Senate to change laws to help the masses out.
Time will tell as it always does, When we look back in 5 years it will be interesting to see how things shake out in the real estate market. Rates were too low for too long and now they are high for too long. The FEDs are definitely playing with fire these days.
